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Friday, 28 April 2017

Vive La Fance or Vive La Republic on May 7th, 2017

The French Presidential Election of Marine LePen threatens the
European Union project as much as Brexit already has done. We here at
Fund Portfolio Management – FPM vehemently believe that this western phenomena
of populist activism will garner a victory for the anti-EU candidate
of Marine LePen.

Without going into how the historic 2nd round run-off
between two political outsiders came about, or even understanding
French politics nuance it is fair to say France is in desperate need
of “change”.

Economically, and in other respects like eradication of its historic
socialist values is at stake. Its national debt to gross domestic
product is a staggering 96%. What does that mean? This all-time high
figure of debt to GDP reached in 2016 means France's taxpayers i.e.
the average citizen of that country will struggle to pay “national”
debt for years to come with “austerity”. The chart below shows
how the debt of the country has ballooned beyond incredulity since
the US-led financial crisis of 2007-08.

The change that we believe the country needs is to adopt its own
currency, and take control back of its sovereignty. So getting out of
EU is essential! Being in the EU allowed France to exceed the
regional union's own prescribed debt management levels; while
hampering it's ability to devalue it currency and export itself out
of debt, in the recent past since the financial crisis. That is,
growth in its economy has been anemic to non-existent due to its
hands being tied by being in the EU.

Controlling its economic levers of power,
like currency alone will not fix the economic despair that the nation
faces; other factors like being able to set it's own interest rates
with conditions for limiting migration should help
contain the outflow of currency. This strict border-control aspect IS
NOT possible under the EU rules of freedom of movement of people and Shengen agreement; and which every student of economics
would understands as a closed-economy i.e. being able to prevent money
flowing out of a system. Unwinding an association of 40 years or so is not difficult, as UK proved in recently triggering Article 50.

We strongly believe the phenomena of “globalisation”, as defined
below, is singly and solely the reason for France's woes. Remember
that the world globalisation did not even enter the lexicon before
the 1980's. As the dictionary of those times describe what it
ORIGINALLY meant, and how it entered the business then popular
language vocabulary, as a good and positive phenomena.

Nationalism and protectionism as prescribed by the National Front
candidate Le Pen is a MUST solution NOW. Unless of course
collectively the EU can have the power to default on debts or destroy
debt by allowing inflation, it is a slow road to third world country
status. The strong nations in the EU bloc like Germany and
Switzerland, which was originally started as an European Economic Co-operation treaty, will NOT BACKSTOP France if it collapses
(fails to repay debts) under the strain of its national burdens. The
Nation's debts are with countries that have large foreign currency
surpluses, like its close neighbour Germany in the EU; and broader
countries like China, and the oil states. This link here will take
you to a France and other indebted nations' woeful economic
statistics.

Like its other close neighbour across the Channel, United Kingdom
who exited the EU on epochal day 23-June-2016, even though they
controlled their own economic levers to a large extent, France has
little other options than to leave the Union. Maybe France is happy
to part of larger union like Scotland with Britain and others forming
the UK. That union is 300 years old and visibly at least a healthy
marriage, despite occasional public remonstrances! Or perhaps, if
France exits, the EU will reform or be rolled-back to be once more an
European economic cooperation area, without the the binds of a currency
union, and its "Euro Zone".

The speculations are limitless though one thing is certain,
come May 7th, the day of the French Elections we may herald “Vive La France” but not
“Vive La Republic” as well! Why? Because France would affirm itself as State of Europe in federalist plans, if it elects Emmanuel Macron instead of the nationalist candidate. For fear of over-simplification a republic is independent of a monarchy. And as "Brexiteers" know, being answerable to an unelected European Commission is tantamount to reign under an absolute ruler or de facto monarchy (of bureaucrats and capitalists).